Dust flux, Vostok ice core

Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Monday, November 28, 2016

Dr. Copper strikes back

Some time ago I compared the price of copper to an old man falling slowly down the stairs.

Not anymore.

The current move marks a major change. Whether this is supply driven or demand driven is unclear to this author. So I can't say whether a new developing country (India, or perhaps the US?) has appeared, or whether China has re-ignited its building boom. I do note that subway line 2 has now opened in Zhengzhou, and several more are under construction. The same is true in Changsha, and undoubtedly in other cities across China.

Let's see what I mean.

I have used reconstructed state space portraits as a way of highlighting changes in dynamics in systems, particularly in pricing. One of the easiest graphs to plot is an absolute measure against its rate of change. Below we see the gold-copper ratio plotted against its rate of change since the start of 2015.

Because I calculate the rate of change over a five-week period, and plot it in the middle--it means the most recent point on the graph reflects the ratio about two weeks ago. Currently, the gold-copper ratio is about 450.

Essentially, the graph shows two metastable states--one where the gold/copper ratio is between 400 and 500, and one with the ratio between 550 and 650. The transition from one state to the other occurred in January this year, prompting this.

Well, if we assume that a lower gold/copper ratio means the perception of increased demand, and given the timing of the breakout relative to the recent election, maybe the market is taking Mr. Trump's remarks about a major infrastructure build-out in the US seriously.